Is it better to use a tax professional; or just stick with the software?

Jan 23, 2013 8:53 PM

Despite what politicians promised; I'm probably going to owe money this tax season because I'm a middle class employee who got a raise, and forgot to adjust my witholdings. I was on such a role of breaking even too.

With that being said; each online service I've used so far has me owing a couple hundred to the feds. Would it be worth it to see a real tax professional (H&R Block, etc) to see if they can work some magic and get me a refund? Or are their ads just a bunch of crap?

Top Answers

As a tax professional (CPA), unless you have your own business (Schedule C), there probably isn't much a paid preparer can do. Just make sure you have entered all Sch. A deductions and check the available credits to see if any apply to you. And, one major thing people often forget when preparing their own taxes is all stock sales are a taxable event, even if you don't withdraw any money from the brokerage account. The IRS will come after you for not reporting stock sales. Look for interest and dividend income too.

Unless your taxes are super complicated (investments, business deductions, excessive medical bills, etc) the software should walk you through the entire process. We run a relatively complicated business and also have investments and Turbo Tax is all we need.

When I had a job and got a raise the first thing I would do is raise the amount I contributed to my 401k. That will sometimes keep you from entering a higher tax bracket.

The people working at H&R Block, Jackson Hewitt, etc - they're using the very same tax software you are. I used to work there (receptionist fwiw). They take a class that makes them more familiar with the software. So... you're not any better off going there.

Now, going to a real tax professional may save you that couple hundred bucks, but how much will it cost?

Also, do you itemize your medical expenses? More of that stuff is deductible this year, and with a little effort (tracking down billing info from your doctors, labs, etc) you may find a few hundred bucks!

Annnnddd, lastly - check out freetaxusa. They're spot on with TurboTax, but WAY cheaper. But I run the numbers through both each year to make sure they're still solid.

ETA: Even when I used to have a Sched C - Turbo Tax handled it. No need to pay $90+ for someone else to data entry for you.

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I dunno about H&R or any of those type major accounting firms. I use a local accountant to do mine doesn't cost to much and I usually get a small amount back. When I say small i mean tiny wouldn't even cover the accountant fee. But eh better than paying the gov.

As a tax professional (CPA), unless you have your own business (Schedule C), there probably isn't much a paid preparer can do. Just make sure you have entered all Sch. A deductions and check the available credits to see if any apply to you. And, one major thing people often forget when preparing their own taxes is all stock sales are a taxable event, even if you don't withdraw any money from the brokerage account. The IRS will come after you for not reporting stock sales. Look for interest and dividend income too.

Unless your taxes are super complicated (investments, business deductions, excessive medical bills, etc) the software should walk you through the entire process. We run a relatively complicated business and also have investments and Turbo Tax is all we need.

When I had a job and got a raise the first thing I would do is raise the amount I contributed to my 401k. That will sometimes keep you from entering a higher tax bracket.

You know, last year, I'd have waited for @dcalotta to show up, but I note that he hasn't been around for months and months. I'm going to try to channel him, so bear with me.

I'm a fan of TurboTax, and my taxes are pretty complicated (just trust me on this one). I'm also a fan of using professional tax preparers (I've had at least one year where nothing else would have worked). Please note that I do not consider H&R Block to be in that category. They, and Jackson Hewitt, and any others who pop up are slight less useful than just using the software. If you can use the free online services (whether from Intuit or someone else), you are going to see about the same answers everywhere, and you might as well bite the bullet and just pay up.

Buy the software. Try it out. The worst that will happen is that you'll still owe money. Who knows? Maybe @dcalotta will still show up...

The people working at H&R Block, Jackson Hewitt, etc - they're using the very same tax software you are. I used to work there (receptionist fwiw). They take a class that makes them more familiar with the software. So... you're not any better off going there.

Now, going to a real tax professional may save you that couple hundred bucks, but how much will it cost?

Also, do you itemize your medical expenses? More of that stuff is deductible this year, and with a little effort (tracking down billing info from your doctors, labs, etc) you may find a few hundred bucks!

Annnnddd, lastly - check out freetaxusa. They're spot on with TurboTax, but WAY cheaper. But I run the numbers through both each year to make sure they're still solid.

ETA: Even when I used to have a Sched C - Turbo Tax handled it. No need to pay $90+ for someone else to data entry for you.

Thanks for all the answers. My taxes are extremely simple. Married, no children, minor investments. I figured the internet software would be all I needed, just wanted to see what the wootizens suggest. I'll just bite the bullet this year and fix my withholdings for next year.

It'll depend on your situation. We just got our W2s here and I joked to my assistant "Did you do your taxes already so you could get your refund to spend?" He said he was considering going to a professional this year to see if he could get a bigger refund. I know him well enough to know that he has very simple taxes, and any expenses he could possibly deduct (hardly any) would add up to far lower than the standard deduction. He would basically end up paying someone to do something he could do himself online.

I use a CPA. I started because I had to, but then just kept doing it because it works and reduces my stress. I started because I am somewhat foreign and move around a lot so it was hard to know what income to report where. Now I still use him. He is local and nice and does a great job and covers all the bases. I suppose nothing I could not achieve with software, but luckily the return usually covers the fee with a little left over for me. There have been some minor benefits though.

First, I got some warning/tips to help me avoid owing money on the upcoming tax year (essentially stop claiming some deductions to avoid owing). Nothing fancy, but it was nice not to owe.

Second, local knowledge. State tax laws can vary, using a CPA who is specialized and from the area means they will generally know the nuances of the local state law. This can lead to money saved or trouble avoided. For example, I think some people in this state flat out forget to file their property tax return; I didnt.

Don't go to H&R or Jackson Hewitt. If your taxes are complicated enough that you need professional help, go to an ACTUAL accountant at a local CPA firm. But your taxes sound simple enough that there is nothing a paid preparer can do for you anyway, unless they flat out lie and claim false expenses as deduction, in which case you would be guilty of fraud. Always beware of tax preparers who claim they can give you substantially bigger refunds than the mainstream preparers. They are usually fraudsters.

I do that every year. I am up to 15% as of this year though, so I think I'm going to ride that for a while -- with what they're putting in via company match, I'm putting away 25% each year. I figure it'll be sufficient for now.

I never thought of it as a tax shelter, but I suppose that's why I haven't gone into a higher bracket in the past few years despite promotions and such.

@eraten: Have you considered making a donation to an IRA that you set up seperate from work? You can make donations right up until April 15 and have them count against 2012 taxes. This will reduce your liability as well as possibly diversify your retirement portfolio to make sure you have several accounts working in your favor.

@ohcheri: We don't have a terribly complicated filing status. We have used TurboTax for the last three years and been very happy. If you contribute to Goodwill, Salvation or the like, the itsdeductible.com tie in for TurboTax is very, very nice.

They ask what I feel are the right questions and keep information for you to retrieve should you need to at a later time. We used a private tax consultant four years ago and I ran the numbers in TurboTax just to be curious. Same numbers and it was a lot less expensive.

My dad is a CPA, but I've been using a free online tool for the last few years (under his supervision so I didn't over-depreciate anything prematurely). The steps are very easy to follow and last year he just looked over it at the end and said it was correct. If you can file the 1040EZ, you'll be fine. Even the full 1040 and a schedule or three isn't that hard.

A good accountant or tax lawyer can help you find some loopholes, but if you're worried about a few thousand dollars there probably aren't any written for you. The IRS has mostly removed the easy ones with broad application.

Pretty much everything has already been said. If you are average to above average, you don't need a professional. Last year I used a CPA (I moved, and have a rental property which is more complicated that I realized) and will do so again next year. I may give it a go myself next year.

There seems to be a thought that tax pros (CPAs and attorneys, don't let anybody fool you into thinking HR Block, Jackson Hewitt, etc. are professional anythings) are only valuable if the amount of tax savings is greater than the fee. I would challenge that assertion for a number of reasons. The first would be that you are engaging a professional so that your tax filings are correct, not to lower your taxes (and/or raise your refund). Secondly, hiring a professional gives you access to all of that professional's knowledge and experience, and gets someone else involved to deal with the minutia. For instance - if your refund is held up for some reason, it is a pain to try and get in touch with the IRS to figure out why - you could do it yourself, or call your tax preparer and he (or someone in his office) could deal with it for you. Depending on the professional, it may also act as a big picture review of your financial situation - i.e., if your mortgage interest expense

seems out of whack with what the professional's other similar clients have, it could trigger him to ask the question as to why, and maybe help you save some real money through a refinance, for instance.

Hiring a professional also gives you someone to call when the IRS comes knocking (or, realistically, they send you a letter that makes your heart drop when you read it because there are big numbers on the first page). In my experience, most professionals will deal with a simple notice for you gratis, as it can take them/us a very small amount of time to deal with because it's the 10th type of that notice that we have seen that year and we're clued into the IRS's fishing expedition. If the proverbial poop really is hitting the fan, you already have someone who can represent you who knows your situation.

One other item, not directly related to tax returns but more to having a relationship with a professional, is that it opens up all of their relationships to you.

I know a lot of attorneys, bankers, business owners, etc. If you're looking for an attorney, asking your accountant is probably a good place to start - we work with attorneys a lot and have established these relationships and can give you a better answer than Yelp can. This year, a partner in my firm set up two clients in similar industries who have been able to leverage the relationship into some business efficiencies and new opportunities - I believe the story goes that he recognized that they both work on material handling something or others, put the CEOs in contact, and they filled in the rest (sorry, I don't know all the details).

So, my plug for CPAs over, if you're confident preparing your own taxes, go for it. My message is to realize that you are getting a lot more than your tax return prepared when you pay for a CPA or attorney to prepare it, and that maybe the way to value that isn't as straightforward as "is the fee higher than the extra refund."

If your taxes are easy - ie: You have a job, you goto work (in the same state), you have a mortgage, and/or some investments - software should be fine.

Every year though, the wife and I pay a CPA to do ours. It costs us like $200, but she has a job based in NY state, works almost %100 from home and apparently that means she can claim NJ taxes instead of NY taxes ( which are substantially higher). So, she pays NY taxes, claims them back then pays NJ taxes and that nets us some money. No-where on a software package did I find that kind of thing available to input.

The ease of mind of being able to point to our CPA and say 'He knows....' if IRS come knocking makes it worthwhile for us.

He also knows weird little things - like the $15 credit you could claim from some telephone rebate a year or two back (admittedly I knew this myself (and so did the software), but he brought it up) and a myriad of other little changes make him a good deal...

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